Bangkok--12 Apr--Fitch Ratings
Fitch Ratings has downgraded Finansa Public Company Limited’s (FNS) National Long-Term Rating to ‘BBB-(tha)’ from ‘BBB(tha)’. The Outlook is Negative. At the same time, the agency affirmed its National Short-Term Rating at ‘F3(tha)’.
The downgrade reflects FNS’s increased leverage, deteriorating liquidity position and funding profile that remains weak because of reliance on short-term funding to finance long-term assets. Fitch notes the company’s short-term liquidity profile is particularly weak. The downgrade also factors in prolonged weak performance of its subsidiaries that has reduced FNS’s capital. The Negative Outlook reflects Fitch’s expectation that profitability would likely remain low and volatile over the medium-term.
Debt at FNS — the holding company level - has increased with net debt/equity of 1.25x at end-2011 (end-2010: 1.23x; end-2009: 1.17x) as a result of increased issuance of bills of exchange (BE) and borrowings from related companies to fund the group’s liquidity needs and operations. On a consolidated basis, net debt/equity has also increased but remained low at 0.4x at end-2011. Double leverage at the holding company level, measured by investment in subsidiaries and associated companies to equity, rose further to 2.0x at end-2011 from 1.86x at end-2010, underlining increased dependence on leverage to finance equity investment in subsidiaries.
The group’s liquidity risk also increased owing to higher short-term borrowings and fewer high-quality liquid assets and could heighten in a volatile funding environment. FNS has increasingly relied on BE as a major funding source. Outstanding BE on a standalone basis stood at THB619m at end-2011, an increase from THB471m at end-2010.
Lack of positive developments on leverage and liquidity position or further weakening of these factors in the next nine to 12 months would lead to a one-notch downgrade of the National Long- and Short-Term Ratings. A recovery in profitability underpinned by income growth and cost decline over the next six to 12 months could lead to the Outlook being revised to Stable, although Fitch views this as a remote prospect in the near term. The National Long-Term Rating could also be upgraded by one notch if there is evidence of sustained improvement in financial performance and leverage and material improvement in its liquidity position.